Home > Managing Debt > New Federal Rule Protects Benefits from Garnishment

Comments 75 Comments
Advertiser Disclosure


A new rule protecting certain federal benefits from garnishment became effective May 1, 2011. The regulation, titled, Garnishment of Accounts Containing Federal Benefit Payments, is important because it will help protect the elderly and disabled, among others, who receive federal benefits from having that money taken from their checking or savings accounts by creditors.

What is Protected?

Federal law protects certain types of Federal benefits payments from creditors. These include Social Security benefits, Supplemental Security Income (SSI) benefits, VA benefits, Federal Railroad retirement benefits, Federal Railroad unemployment and sickness benefits, Civil Service Retirement System benefits and Federal Employee Retirement System benefits. Under Federal law, these types of funds are protected from garnishment by judgment creditors.

What is Garnishment?

If a creditor successfully sues a debtor to collect a debt, it will be awarded a judgment. A judgment creditor may be able to try to collect the judgment by taking or “garnishing” money from the debtor’s bank account. State and federal laws restrict garnishment, and some income—the types listed above, for example—are protected. In most cases, a creditor must first get a judgment before garnishing funds, though there are some exceptions, such as student loans.


Why is This Rule Needed?

Financial institutions who receive a garnishment order often place a freeze on the debtor’s account, and may send the garnished funds to the court or creditor. That may include money that should be protected. The debtor is then left without access to the funds needed to pay essential bills, and must then try to prove which money in the account that was frozen or taken is exempt.

What the New Regulation Does

A financial institution that receives a garnishment order will now be required to review the debtor’s account history during the previous 60 days. If, during this ‘‘lookback period,’’ one or more exempt payments were directly deposited to the account, the financial institution must allow the account holder to have access to an amount equal to total benefits received during that period, or the balance of the account on the date of the account review, whichever is less. Financial institutions will also be required to provide account holders with a notice of their rights.

To help financial institutions identify which funds are protected, there will be a tracking code attached to direct deposits of certain federal benefits. Benefits payments received by check are not covered by this regulation because they can’t be identified using these tracking codes. While those funds are still protected from garnishment, recipients may run into the old problem of having their accounts frozen first, and trying to assert their rights later.

This regulation does apply to accounts that are jointly held with someone else, and it also applies to multiple accounts, if a debtor has more than one account with a financial institution.

What It Doesn’t Do

It does not protect funds from garnishment to collect child support or money owed to the U.S. government. It doesn’t protect all benefit payments that may be exempt, such as military retirement payments, and certain payments made by the Army, Navy, Air Force, Marines, Coast Guard, National Oceanographic and Atmospheric Administration and the Public Health Service. (That may change in the future.)

It also doesn’t protect funds that have been transferred from one account to another. If, for example, a debtor’s Social Security check is deposited into his checking account, but he later transfers that money to a savings account, this regulation no longer protects it. (Again, the funds may still be exempt from garnishment, but the debtor may find himself with his account frozen, trying to prove that the funds should not be garnished.) And it only protects sixty days’ worth of direct deposit benefits payments.

What You Should Do Next

If you receive income from federal benefits and are having trouble paying your bills, be sure to get help. Talk with a consumer law attorney or bankruptcy attorney to find out how to protect your money and assets, and resolve your debts.  If a debt collector threatens to garnish income received from any of these protected sources, such as Social Security income, talk with a consumer law attorney immediately. The debt collector may be breaking the law.

Image: Kevin Cortopassi, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team